Ranchers take on the beef industry over mandatory checkoff payments

David Pfrang of rural Goff, Kan., seen here checking on a herd at feeding time, has become a thorn in the side of bigger beef producers. File photo by Jill Toyoshiba The Kansas City Star

By MIKE McGRAW and PEGGY LOWE | Harvest Public Media

NEMAHA COUNTY, Kan. – From their small farms set in the rolling hills of northeast Kansas, two ranchers are raising a few cattle — and a lot of Cain.

David Pfrang and Jim Dobbins turned themselves into activists, launched a mirror corporation, got hauled into federal court and had to hire a lawyer.

All over $1.

That buck, though, divides the beef industry. And it may influence what you decide to have for dinner.

The federal “beef checkoff” mandates a rancher or feedlot pay $1 every time a head of cattle is sold. That adds up to about $80 million a year nationwide, money that is supposed to be used to convince us to buy more beef. Nobody in the beef industry argues much about that idea.

Checkoff officials say a recent study calculated that every dollar collected by the checkoff delivers $11.20 in return. Among its successes is a series of iconic commercials called “Beef, it’s what’s for dinner.”

But that $1 assessment, critics like Pfrang and Dobbins say, flows to state and national lobbying groups that work against them.

Sellers must pay even if they don’t believe they have any say over who gets the money, or why. And they must pay even if they believe the fund advances the interests of multimillionaire ranchers against their own.

“We just lost some freedom and we’re not being represented,” Pfrang said.

As many as a fourth of the nation’s 730,000 ranchers — mostly small independent farmers — say that the checkoff has become a billion-dollar bonanza for big ranchers, industry executives and giant beef packers. Their complaints have taken on new urgency with efforts to double the checkoff.

Indeed, federal statistics show larger, more efficient cattle operations are forcing out smaller ranchers and feedlots, one of the last vestiges of the small family farm — a slice of Americana that many of us still picture when we think of agriculture.

Consolidation has already altered the U.S. chicken and hog industries.

Opponents have fought the checkoff all the way to the U.S. Supreme Court, which ultimately ruled that it is legal “government speech.” But that has not deterred small ranchers who continue to file lawsuits, release scathing analyses of the program and lobby the secretary of agriculture for change.

Polly Ruhland, chief executive officer of the Cattlemen’s Beef Board, which oversees the checkoff, says the program is working as it should.

“Producer approval of the beef checkoff program is at its highest in 21 years,” she wrote in an email.

Political beef

The federally authorized collection agents for the checkoff are state groups like the Kansas Beef Council in Topeka, which is at the forefront of the battle Pfrang and Dobbins are waging.

They say their battle started when the Kansas council refused to give them detailed financial records on how they spend the $10 million a year they collect from them and 20,000 other Kansas producers.

Kansas and other state beef councils keep 50 cents of every dollar they collect and use it to run their own statewide programs. The other 50 cents goes to the national Cattlemen’s Beef Board, which runs the national beef promotion campaign.

Some of the money has paid for consumer research aimed at reducing the number of foodborne illnesses caused by beef. Millions more has poured into universities at the top beef-producing states, where it funds studies on beef tenderness and merchandising.

Because the collections are mandated by federal law, Congress built in safeguards to prevent checkoff dollars from being misused for lobbying or political contributions.

But many small ranchers, including Pfrang and Dobbins, don’t think those safeguards are working.

The state beef councils — and the national program — have strong ties to politically oriented beef industry lobbying groups up and down the line, which critics say often push for issues that favor large operations.

At the national level, for example, the vast majority of checkoff dollars is funneled into the National Cattlemen’s Beef Association.

The NCBA has long been a strong political voice, spending millions on lobbying and campaign contributions.

Yet as the prime contractor for the national beef checkoff program, the NCBA gets more than 80 percent of total checkoff revenue, according to a recent lawsuit filed by small producers.

“I think it is a broken system,” said Wil Bledsoe, president of the Colorado Independent Cattle Growers Association and a rancher who raises 900 cattle near Wild Horse, Colo.

“I don’t want them using my money to fight my livelihood like they have been,” he said. “What’s good for packers isn’t usually good for the little guy, and vice versa.”

For their part, checkoff officials say no checkoff money leaks to lobbying.

Checkoff funds are “extensively audited from various angles,” Ruhland, of the Cattlemen’s Beef Board, wrote in her email.

Checkoff officials at all levels insist that firewalls built inside the lobbying organizations prevent any misuse of those funds.

Faulty firewalls?

But critics say those firewalls sometimes work more like revolving doors.

And government monitors are aware of the problems, said one former U.S. Department of Agriculture official.

“The administration is well aware that the NCBA has misappropriated producer money and the NCBA has helped defeat policy reforms that would have helped small producers,” said Dudley Butler, who resigned as a top USDA official in 2012.

In an open letter to his old boss, Butler said Agriculture Secretary Tom Vilsack has all the power he needs to reform the program but refuses to do so.

Vilsack has said he is trying to settle the disputes.

Claims from Butler and others got some traction two years ago when a federal audit, sparked by complaints from producers, found that the NCBA had wrongly spent $216,000 on “non-checkoff activities.”

Despite those findings, auditors assured producers that there’s no reason to question the integrity of the program.

Critics aren’t satisfied.

They say auditors looked at a fraction of the transactions between the beef checkoff and the NCBA, according to a lawsuit filed by a group of farmers called the Organization for Competitive Markets. They seek access to more than 40,000 pages of unreleased documents.

High salaries paid to NCBA officials also are like a spur in the side.

Federal tax forms show that NCBA’s chief operating officer, Forrest Roberts, was paid $428,319 in 2013. NCBA officials say Roberts’ salary is comparable to other CEOs in similar positions.

But that isn’t the point, critics say.

“NCBA regards the checkoff as its own personal financial trough and will do everything possible to cement that status into eternity,” National Farmers Union president Roger Johnson has said.

“We need a complete audit of the beef checkoff,” she said. “Not just a few years, all the years, and show where the funding goes.”

Foreign trade also inflames small ranchers, who are furious that the NCBA, funded in part with their checkoff dollars, has lobbied against country-of-origin labeling on meat products. They say consumers clearly prefer beef that is raised and slaughtered here.

“I think the American housewife has a right to know where their beef comes from,” said Malvern Mizner, a rancher from western Nebraska. “We even know where our underwear is made.”

Despite those concerns and more than $2 billion spent to spark demand over the years, critics add, the checkoff hasn’t stemmed the steep slide in U.S. beef consumption.

Two-hat states

In Kansas, the politics of beef are hard to ignore. Consider the career of Thomas Dee Likes.

Until recently, Likes was the executive vice president of the 5,500-member Kansas Livestock Association, a 120-year-old Topeka lobbying group that many small ranchers believe lobbies against their interests.

But Likes also was the epitome of what checkoff cowboys like Pfrang mean by the term “two-hat state.”

On one day, Likes could wear his Kansas Livestock Association hat, lobbying a state legislator over lunch. Later the same day, he could wear his Kansas Beef Council hat, riding herd over checkoff dollars.

That’s because Likes was also treasurer of the Kansas Beef Council, a subdivision of the Kansas Livestock Association (KLA).

Likes, the beef board and the USDA say there’s nothing amiss about the arrangement in Topeka.

Likes said the beef council has its own board of directors and a separate accounting system and no lobbying and checkoff funds are commingled.

Up in Nemaha County, the arrangement has cattlemen like David Pfrang pulling his hair out.

How can there be a firewall between checkoff dollars and lobbying like the law says when Dee Likes could walk back and forth through that wall all day and never get singed?

Recent audits show nothing amiss, but Pfrang isn’t satisfied.

He and his neighbor Dobbins already knew that Likes was paid handsomely for his service to the industry. The most recent KLA financial report shows Likes was paid total compensation of $329,937 in 2013, but in years past he’s made over $1 million in salary and other compensation.

Likes retired from his leadership role at the KLA at the end of 2014 and became chief executive emeritus.

But the old “two hat” arrangement will continue under Likes’ successor. Matt Teagarden recently replaced Likes as executive director of the KLA lobbying organization and also serves as treasurer of its subsidiary, the Kansas Beef Council.

Trojan horse

The arrangement sent the two Nemaha County cowboys down to Topeka in 2011 on a fact-finding mission.

But they could find no record of the Kansas Beef Council with the secretary of state.

It was as if the council, a government-authorized collection agent for the mandatory checkoff assessments, didn’t exist at the Kansas secretary of state’s office.

That gave the Nemaha County cowboys an idea.

They registered that same name themselves with the secretary of state, then wrote bylaws and elected themselves to run their very own Kansas Beef Council Inc. Only in their version, they said, everyone would get a vote.

Before long, Pfrang and Dobbins started getting a lot of mail from Topeka.

“If you have $10 million coming into your coffers every year, would you want a couple of snotty-nosed cattlemen up in Nemaha County wanting to try to jump into your pool and muddy it up?” asked Dobbins.

The Kansas Livestock Association accused them of stealing the name “Kansas Beef Council.” Washington lawyers sent them a cease and desist order and hauled them into federal court. In the end, they decided to give up the name but refused a demand for a gag order — they’ve been talking about it ever since.

Pfrang can’t do much about the national checkoff program, he said. But he did find a way to keep the Topeka crowd from getting his money.

Federal law allows ranchers in some states, including Kansas, to forward their entire dollar-per-head checkoff payment to the national program. So far, state beef council officials said, Pfrang is the only Kansas rancher to take advantage of the loophole.

“It’s turned us into activists,” Pfrang said.

But he’s not any happier with direction at the national level. Recent efforts by checkoff supporters to double the fee to $2 a head sparked a renewed battle.

All the bickering prompted Secretary of Agriculture Vilsack to let loose at a recent Kansas City news conference.

“Because they’re locking horns, tens of millions of dollars of promotion and research and marketing isn’t getting done,” Vilsack said. “I mean, seriously, does that make sense?”

Whether all the bickering makes sense or not, critics say the battle royal over the beef checkoff is really a struggle to preserve a way of life. They will continue to complain, they say, until the government fixes it or they go the way of the small chicken and hog farmers who succumbed to what appears to be an inevitable march toward consolidation in American agriculture.

Mike McGraw is a special projects reporter at the Hale Center for Journalism at KCPT. Peggy Lowe is investigations editor at Harvest Public Media and KCUR. KCPT’s Hale Center for Journalism serves as a center for local multimedia journalism and collaboration with PBS, NPR and regional news sources. The Center houses Flatland, an open-source, digital forum producing stories and conversations about things that matter in Kansas City. Read more here